Jefferies says although electronic gaming machines supplier PlayAGS has fallen to deep “out-of-favor status,” the “severely undervalued small-cap stock” is nevertheless a prime opportunity for investors. The firm upgraded PlayAGS shares to buy from hold, and raised its price target to $10, implying 89% upside from Friday’s close. “The basis for the upgrade is that the operations are progressing better than the past three years post the missteps of 2019 and Covid,” analyst David Katz wrote in a Sunday note. “The [latest] quarter supports the trend that product momentum has been building over the past several quarters, which should continue to accelerate. Our impression from management is its future strategies support this acceleration.” Katz noted that PlayAGS’s first-quarter earnings and revenue topped Jefferies’ estimates. The company posted revenue of $83 million, higher than Jefferies’ $75 million, and adjusted earnings before taxes, depreciation and amortization of $37 million that topped the firm’s $33 million estimate. “Better-than-expected 1Q23 revenue [was] attributed to a broadened global customer base and increased EGM sales, notably in international markets,” said Katz, referring to electronic gaming machines. “Given the product traction, we believe the dislocation of valuation from the earnings acceleration presents opportunity.” He added that PlayAGS will have more selling opportunities once it receives regulatory approval from three new states. “We expect revenue and Adj. EBITDA to continue growing, [and] leverage to begin decreasing.” After surging 13% Monday on the upgrade, PlayAGS shares are now ahead by almost 18% year-to-date, after sliding 25% in 2022. —CNBC’s Michael Bloom contributed to this report.
